Tech.Anal

How do we know overbought and oversold...?
If I want to create any setup then what is my preferences for the setups or what the route should be taken by me?
How do I understand this market?
How do I make a trading plan & execute?
First know the trending & sideways market.
There are two contexts wherein OB & OS emerges.
a) Trending periods: In uptrend, the technical oscillators reach the OB zone soon but they tend to stay there for long periods and traders often miss the big part of the move by exiting their trades the moment oscillators reach "OB" zone. Identifying a trending move is important and there are many ways to know a trending market.. Price making higher high & higher low..TT-Tech table-prices closing above DHEma while higher T/F TA too in upmode, and so on. Apply the same to downtrends too.
b) Sideways periods: During uptrend or downtrend, markets tend to pause for some time after a sustained price rise/ fall. Prices tend to move in a sideways mode in a channel which may be a horizontal type(Flat correction), in a converging/ diverging channel(Triangle) or in an upward or downward sloping channel (Zigzag). This may be identified best with a close below DHEma during uptrend or a close above DLEma during downtrend. Oscillators tend to move from one extreme to the other and once they reach OB or OS zone, they promptly reverse.
Since the markets spend most part of their time in a "Corrective mode", oscillators work well most part of the time. However, this also leads to complacency on the part of the trader and they fail to see the different acts of this oscillator once the trend emerges or resumes. Thus they either miss on the "biggest moves" or "find themselves holding hugely loss making position, unable to accept the change in time, not applying stop loss strategy.
Knowing that there are many technicals working at all time...month/ week/ Day and Hour, etc.. will help you to be prepared for the most important aspect of "Technical Analysis" which is "Trend asserts itself when it matters most which is - at the close period of month/ week/ day & Hour, etc". This is the reason why prices may behave contra to the trend most part of the hour but go back towards the trending side at the closing of the hour. Similarly for day, week and month. Intra week upmoves get fully retraced on the last day of the week. Intra month rallies are retraced towards the last part of the month. Intra settlement moves are well settled in favour of the trend at the close of the settlement.
Believe in this most important characteristic of technical analysis, the most practical one. The prices will make you most uncomfortable with their counter trend moves during the "intra period but within the permissible levels" but will go back to their trending direction when the said period (Month or week or Day or Hour) comes to a close.
If you can believe in this, and make it a part of your strategy, you'll then look at the counter trend moves as opportunities to initiate the most rewarding trades and if you are already in the trending trade, you will learn to "sit through the counter trend moves with amusement".
Remember also that some of these counter trend moves tend to be "reversals" and thus you may get stopped out of few of those trades. Some of these could be overcome, if you keenly observe the "changing dynamics of the market by observing the changing momentum of the market" using "Divergences" as well as learn to "play the counter trend moves" using:
1. Pivot trading with Support and resistances.
2. Intraday trading
3. Tech.Table reading.
Market, most often, makes its intention clear by way of certain "developing patterns" such as continuation patterns and reversal patterns. Your ability to spot them and merge them with your other studies such as classic TA, EW, Gartley patterns, Market profile, Open Interest analysis, SAR study, etc. will make you arrive at a "trading plan which has good risk-reward ratio". The next step is to identify the tools of execution:
1. Buy/ sell futures.
2. Write option.
3. Buy Option.
The degree of your comfort level with the above tools besides the type of market - trending or sideways and the time remaining in a series would decide the tool of execution.
In a trending market, option gives you unlimited profit irrespective of the time of the series. However, if the comfort level is less, writing gives easy gains provided you choose a better strike price.
In a sideways market, writing PE near the support level and writing CE near the resistance works OR simply write both CE & PE at the pivot point. Remember to take those profits once the option gets to 5 to 10 while leaving some on the table & freeing the margin money.
Armed with the most basic knowledge, arriving at trading plans based on the most objective, honest observations, executing such plans in a detached manner, you’ll gain experience slowly and steadily. This experience will turn to intuitive power which will lay the foundation for Getting Rich Slowly and Quietly.
We wish you a very Happy and Prosperous New year in which you’ll grow in all the aspects of your life and be a lighthouse for all around you.